Sailors beware: P2P piracy will sink your jobs by 2015

Yet another study on Internet piracy appeared last week, and it's a biggie. Commissioned by the International Chamber of Commerce's Business Action to Stop Counterfeiting and Piracy group (BASCAP), it concludes that the entertainment sectors of European Union countries could lose €240 billion ($324.6 billion) in revenue and 1.2 million jobs by 2015.

"Digital piracy is sweeping through global markets," warned an ICC BASCAP guy in the accompanying press release. "In its wake, these creative industries suffer devastating economic losses and an assault on their ability to compensate artists and furnish legitimate employment opportunities. These dire consequences call for an urgent response by policymakers, consumers and the creative industry itself."

The analysis is loudly endorsed by EU entertainment industry trade associations and unions. And, speaking of policy changes, the report comes as Britain ponders its Digital Economy Bill, which even made the Queen's Speech of last November. The proposed law would let British ISPs crack down on deemed illegal file sharers by suspending accounts, limiting broadband speeds, blocking or curtailing access to certain sites, or limiting service to subscribers "in another way" (suggest your hypothetical punishment here).

But some of the assumptions here left us scratching our heads.

Le Vice P2P

"Building a Digital Economy: The Importance of Saving Jobs in the EU’s Creative Industries" presents itself as a breakthrough in anti-piracy research in that it tries to be more rigorous about what kind of jobs are really at risk (we've been complaining for a while about how vague most studies are about this). It divides the fields that create these jobs into two broad categories: "core" and "non-core" digital creative industries.

"Water transport"? We searched the report for some more precise definition of this "non-core" industry, and found none. So here's the thinking, as best we can guess. As more and more EU consumers buy pirated DVDs or download their audio/video content for free via P2P,they will eventually hurt the folks who transport DVDs, CDs, computers, audio/video receivers, musical instruments, and "other household goods" across land, air, and sea through snow, rain, heat, and gloom of night.

In the case of H2O, this would presumably include container ships and the tugboats that guide them to shore—soon to be scuttled by young Jacques and his BitTorrent habit.

Orders of magnitude

The analysis claims that the "whole creative ecosystem in Europe" produced about €860 billion of "value added," representing 6.5 percent of the European workforce. The big challenge, of course, is how to extrapolate the loss of 1.2 million jobs half a decade from now.

"Building a Digital Economy" acknowledges this is a toughie, especially because of the "technical difficulty in determining the weight of the non-core industries on a country level [for a job loss formula] because of gaps in the Eurostat data, which form the basis of the calculation." The results should be treated with "caution."

Here's the methodology:

First, take the number of illegally downloaded or streamed files plus the number of physical counterfeit media products sold each year. Create a substitution rate, representing the number of items that probably would have been sold if the Queen and her agenda setting equivalents for France, Germany, Italy and Spain had already gotten their way. To its credit the report applies conservative substitution rates of 10 percent for music and similar percentages for video; none of this "every download is a lost sale" stuff is in evidence.

Next, punch in retail prices for these items in those countries, which represent nearly 75 percent of Europe’s GDP, and crunch retail losses for all of them.

From this formula, the study calculated €10 billion in revenue losses and more than 185,000 jobs lost due to piracy in 2008, mostly of the digital kind.

From these repositories of data, the report extrapolates two possibilities. One is that "piracy behavior" will continue to center on P2P, resulting in a cumulative EU revenue loss of €32 billion and job losses of 610,000 by 2015. The other assumes that "digital piracy techniques will be further diversified" way beyond P2P, et voila—€240 billion and 1.2 million jobs down the river by that year.

Percentage decline

Hopefully this is not the last word in illegal file sharing research. Don't get us wrong. We think that P2P file sharing, counterfeit DVD sales, and illegal IP video streaming costs jobs. People download this stuff for free or buy/stream it on the cheap, the content providers lose sales, and to the extent that these companies channel their revenue back into production, less folks get hired to make, distribute, and sell their stuff.

But several key assumptions in this study are so full of holes they could retire Captain Nemo's sub, especially when it comes to "non-core" industries. Where's the link between device manufacturing and P2P use here? In fact, it could be argued that illegal file sharing to some degree drives the consumption of computers, media players, and software, as consumers gorge themselves on free digital fare. This has long been a complaint against companies like Apple, in fact; how dare they make so much cash on hardware when people just buy iPods to load them up with illegal content!

Why doesn't this study grapple with surveys indicating that file sharers also buy lots of content? How much IP video will actually be illegal (think Hulu, YouTube, BBC iPlayer, etc.)? And why doesn't "Building a Digital Economy" take into account this paragraph from the very Cisco report that it cites?

Peer-to-peer (P2P) is growing in volume, but declining as a percentage of overall IP traffic. P2P file-sharing networks are now carrying 3.3 exabytes per month and will continue to grow at a moderate pace with a CAGR of 18 percent from 2008 to 2013. Other means of file sharing, such as one-click file hosting, will grow rapidly at a CAGR of 58 percent and will reach 3.2 exabytes per month in 2013. Despite this growth, P2P as a percentage of consumer Internet traffic will drop to 20 percent of consumer Internet traffic by 2013, down from 50 percent at the end of 2008.

Given its willingness to use reasonable substitution rates, the report makes for some decent reading if you're trying to understand what's currently happening to the creative sector, but it's only a place to start. The "non-core" assumptions suggest plenty of dubious job losses, and a complete picture of industry health would need to look at the big revenues raked in by movie theaters and live concert promoters.

Matthew Lasar / Matt writes for Ars Technica about media/technology history, intellectual property, the FCC, or the Internet in general. He teaches United States history and politics at the University of California at Santa Cruz.